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The New Banking Battleground: What We Learned by Implementing Zelle

By Jim Reuter, CEO, FirstBank

Jim Reuter, CEO, FirstBank

Person-to-person (P2) payment is the latest battleground for banks in the IT arms race. Leaders must learn to adopt this new offering quickly or concede yet another area of banking to rising fintech startups.

Banking requires strong risk management skills and therefore leaders often hedge when it comes to change. This can lead to slow adoption of new technologies. We wait to see if a novel approach works before we jump in.

But our conservative nature could become our Achilles’ heel in a growing fintech marketplace. In this IT arms race, P2P payment is the latest battleground, and to be successful, bank executives may need to move more quickly than what feels comfortableor risk setting the scene for another industry swept away by innovation.

There are plenty of examples of this: music streaming services like Pandora, Spotify, and Apple are putting radio stations out of business. Going to Blockbuster to rent a video instead of streaming the latest film on Netflix seems as archaic as waiting 48 hours to see photos from your kid’s birthday party. In other words, P2P is banking’s Kodak moment. To make sure banking avoids the same fate we must adapt.

This is precisely why FirstBank started offering P2P capabilities in 2014, and in 2017, gravitated to Zelle, a fast, safe, and easy way to send and receive money electronically within minutes to almost anyone with a bank account in the U.S.

"The future will undoubtedly bring greater capabilities to P2P"

Several years ago, we noticed most Millennials (our fastest growing segment of customers) were active Venmo users and also preferred banking from a handheld device. We knew they were seeking the convenience of P2P, mobile account access, and the security of working with a bank they trust. Offering P2P generally, and later on, Zelle made sense—and the launch was a success. In 2017, our P2P transactions nearly doubled to over one million transactions via Zelle, totaling $338 million.

Zelle helped us serve our customers better, but the service hasn’t been without its challenges. In our first year, we learned a few lessons that could serve as guideposts for other financial institutions venturing into the P2P arena.

Ubiquity, Speed, and Fraud Protection Matter

Choosing the right network is essential, and when it comes to P2P, “right” translates to ease and broad access for customers. Today, 29 financial institutions are live on the Zelle Network, with an additional 119 under contract, representing 56 percent of the U.S. DDA market. Last year $75billion moved through the Zelle Network®, making it a widely used option for consumers.

Along with ubiquity, speed is also important. But speed could make customers and banks more vulnerable to fraud if not properly managed. Simply put, real time payments also requires real time fraud detection, and adding faster services meant we needed to do more to keep customers protected. In order to accomplish that, FirstBank used new and greater amounts of data to re-engineer our fraud protection and mitigation efforts.

Customer Education Is Essential

The initial use case for P2P was to make it easy for customers to send funds to friends and family. Customers like the certainty of paying someone directly by sending money from their account to the recipient’s account in real time.

With Zelle, payments are pushed from the customer’s account to the recipient within minutes. So if a customer pays for concert tickets from a Craigslist ad, for example, and the tickets are never delivered, we’re limited in our ability to stop the payment.

This is why it’s extremely important to educate customers about the risks to prevent them from falling victim to fraud or misdirected payments, and encourage them to only send payments to people they know and trust. This is one of the reasons FirstBank implemented disclosures when a transaction is initiated and confirmation messages to ensure customers understand the risks and know where their funds are going.

A (Re)Investment of Resources

Launching and integrating Zelle into our core offerings required a sizable amount of work. It wasn’t simply adding a new app to our mobile or online services. In fact, the implementation of Zelle required five software delivery teams. We needed to also train our customer service teams to handle disputes, set up new reconciliation processes, expand fraud detection teams and allocate IT resources for future Zelle service enhancements.

Equally as important as the technical implementation and training, is also an investment in marketing efforts to help drive adoption. One thing many companies often miss is the employee engagement aspect of promoting a new service or offer. We decided to not only leverage online and mobile advertising, but to tap our entire workforce to build buzz. We hosted companywide Zelle-themed events to get employees onboard and excited about the launch. Everyone from tellers to executives donned purple branded shirts and offered customers Zelle-branded-color treats and refreshments, enabling more conversations, awareness and ultimately, customer enrollments of the new service.

The Future beyond P2P

Right now, our customers use Zelle for everything from splitting utility bills with roommates to sharing the cost of a meal or paying their babysitter. The future will undoubtedly bring greater capabilities to P2P. Customers could make donations to their favorite cause, or insurance companies could award claims directly to their customers.

The opportunities ahead for direct payment between individuals are vast. But that future can only be realized in banking if leaders trade their slow-moving tendencies for greater agility.

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